(CNBC) – More Americans renounced their citizenship and
terminated their long-term residency in the first three months of the year than
ever before, courtesy of the crackdown in foreign tax rules. The upsurge
subsided some in the second quarter but has been ongoing since the Treasury
Department and the Internal Revenue Service began aggressively enforcing tax
rules for American expatriates. The crackdown on the Foreign Bank Account
Report is fresh, though the law has been in existence since 1970. Under the law,
U.S. taxpayers are required to file if they held one or more foreign accounts
totaling more than $10,000 over the course of a year. “Many people have been
getting caught up on their U.S. tax filings and then renouncing,” said Andrew
Mitchel, an international tax lawyer who analyzes Treasury Department data.
For a U.S. citizen or resident alien, the rules for filing
income, estate and gift tax returns and paying estimated taxes are generally
the same whether one is in the country or abroad. A person’s worldwide income
is subject to U.S. income tax, regardless of where he or she resides. The
Foreign Account Tax Compliance Act is intended to ensure that the Internal
Revenue Service obtains information on accounts held abroad by U.S. taxpayers
at foreign financial institutions. The initiative comes after UBS in 2009 was
accused of helping American taxpayers hide money overseas. In 2014, Credit
Suisse pleaded to similar claims. UBS paid $780 million to the U.S. and turned
over information on more than 4,000 Swiss accounts. Credit Suisse Group paid
$2.6 billion.
These scandals gained much publicity, launching law officials to
go gung-ho on the mission, and led to an increased awareness among U.S.
citizens about their tax requirements. “I think that the rise in the number of
people renouncing over the past few years has to do with people becoming more
aware of their U.S. tax filing obligations and the potential penalties that can
be imposed for failure to file certain disclosure forms,” Mitchel said. The penalty
for unintentionally failing to file the FBAR is the standard penalty: $10,000
per year. So taxpayers with ties to a supposed “tax haven” are finding
themselves in a tug of war between keeping their assets and minimizing taxes—or
keeping their U.S. residency.
In the first quarter of 2015, the Treasury Department reported
1,335 expatriates. That was the highest quarterly number of published
expatriates ever, surpassing the previous record of 1,130 that was published in
the second quarter in 2013. SPECIAL: Modern Day Patriots, this is the time to
stand shoulder to shoulder with our forefathers in Lexington and Concord. We
need the Tea Party now more than ever. But in the second quarter this year, the
department reported only 460 expatriates. That represents nearly a 65 percent
decline from the record first-quarter number. So is the exodus losing steam?
Freddi Weintraub, an attorney who specializes in immigration law
believes that things may be changing. At one point, Weintraub was seeing a
threefold increase in expatriation inquiries related to taxes. But for the last
10 to 12 months, she hasn’t had a single request for assistance when it comes
to expatriation and taxes. “This past quarter would suggest that the numbers
are leveling off,” Mitchel said. But he won’t make any bold confirmations just
yet. “The quarterly numbers tend to vary quite significantly,” he said. The
third-quarter expatriate list will be published this autumn.
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